The period of time a structure continues to earn sufficient income to continue operations is referred to as the structure’s:
Audio Lesson
Duration: 2:39
Question & Answer
Review the question and all answer choices
productive use.
Option A ('productive use') is incorrect because it's a general term that doesn't specifically address the income-generating capacity of a structure. A property can be in productive use but not necessarily earning sufficient income to cover its expenses.
self-earning.
economic life.
Option C ('economic life') is incorrect because while related, economic life encompasses more than just income generation. It includes factors like technological obsolescence and market demand changes, not just the period of sufficient income generation.
physical life.
Option D ('physical life') is incorrect because it refers to the actual durability and physical condition of a structure, not its financial viability. A building may have remaining physical life but no longer be economically viable.
Why is this correct?
Option B is correct because 'self-earning' specifically refers to the period during which a structure generates sufficient income to continue operations. This term directly describes the income-generating capacity of a property that allows it to sustain itself financially.
Deep Analysis
AI-powered in-depth explanation of this concept
This question tests your understanding of key real estate valuation concepts, specifically the economic characteristics of property improvements. In real estate practice, determining the economic life of a structure is crucial for accurate property valuation, depreciation calculations, and investment analysis. The question distinguishes between different types of 'life' associated with structures. The correct answer, 'self-earning,' refers to the period during which a property generates sufficient income to cover its operating expenses and provide a return on investment. This concept is particularly important when performing income approach valuations, where appraisers must estimate how long a property will continue to be economically viable. The question is challenging because it presents similar-sounding options that test precise terminology knowledge. Many students confuse 'economic life' with 'self-earning,' but in this context, 'self-earning' specifically refers to the income-generating capacity period, while 'economic life' is a broader concept that encompasses more than just income generation. Understanding this distinction is vital for real estate professionals who regularly evaluate property values and investment potential.
Knowledge Background
Essential context and foundational knowledge
The concept of economic life and self-earning is fundamental to real estate valuation and investment analysis. When evaluating property, appraisers and investors must consider how long improvements will contribute value to the property. This affects depreciation methods, particularly in the income approach to valuation. In California, as in most states, real estate license holders need to understand these concepts to properly advise clients on property values, investment potential, and useful life estimates. The distinction between physical life, economic life, and self-earning helps professionals make informed decisions about property improvements, renovations, and investment strategies.
Think of a structure's self-earning period like a person's working career. Just as someone works to earn money to support themselves until retirement, a building earns income to support itself until it can no longer economically justify its existence.
When you see 'self-earning' on the exam, visualize a building working like a person - earning income to sustain itself until it's no longer economically viable.
When questions ask about a structure's income-generating period, look for terms specifically related to financial sustainability rather than physical existence or general productivity.
Real World Application
How this concept applies in actual real estate practice
A real estate agent is advising a client considering purchasing an apartment building. The client is concerned about how long the building will remain profitable. The agent explains that while the building has a physical life of 50+ years, its self-earning period is only about 30 years due to market changes and potential obsolescence. This means the property's income-generating capacity will decline after 30 years, even though the structure itself may remain standing. This understanding helps the client make an informed decision about the investment's potential returns and timeline.
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